MARLBOROUGH FORD SALES LIMITED Respondent/Plaintiff - v. -, 2003 ABQB 298

Marlborough Ford Sales Limited v. Ford Motor Company of Canada, Limited, 2003 ABQB 298 Date: 2003 0401 Action No. 0101-08074 IN THE COURT OF QUEEN'S BENCH OF ALBERTA JUDICIAL DISTRICT OF CALGARY BETWEEN: MARLBOROUGH FORD SALES LIMITED Respondent/Plaintiff - and - FORD MOTOR COMPANY OF CANADA, LIMITED Applicant/ Defendant _______________________________________________________ MEMORANDUM OF DECISION of the HONOURABLE MADAM JUSTICE E.A. HUGHES _______________________________________________________ APPEARANCES: Douglas A. McGillivray, Q.C. Douglas S. Nishimura for the Plaintiff Norman J. Pollock, Q.C. for the Defendant INTRODUCTION

[ 1 ] The issue in this application is whether Ford Motor Company of Canada, Limited (Ford) may amend its Statement of Defence and add a Counterclaim. FACTS [ 2 ] Ford, the Applicant/Defendant, seeks to amend its Statement of Defence by: (1) making grammatical changes in paras. 2, 5, 9 and 12; (2) adding para. 7.1; (3) clarifying the pleading at para. 8; and (4) adding a Counterclaim. [ 3 ] The proposed Counterclaim alleges Marlborough Ford Sales Limited (Marlborough), the Respondent/Plaintiff, sold numerous vehicles which, within six months, were resold in the U.S.A.

Ford says, pursuant to a provision in the Dealer Sales and Service Agreement (DSSA) between the parties, Marlborough is obliged to pay monies to Ford for these sales. This provision is referred to by the parties as the “chargeback provision”. Ford demanded these monies, but Marlborough refused to pay. Ford’s position, set out at para. 27 of its Memorandum, is “the counterclaim simply asserts and particularizes the same claims which the Plaintiff seeks to permanently prevent in its action”. [ 4 ] Marlborough opposes the last three amendments enumerated.

Marlborough’s position is: (1) there is insufficient evidence to support any of the amendments; (2) para. 7.1 is argument and is therefore an improper pleading; and (3) much of the proposed Counterclaim is barred by virtue of the expiry of the relevant limitation period, and the proposed Counterclaim does not bear any proportionality to the Claim itself. [ 5 ] It is important to note that Marlborough commenced its Claim against Ford because Ford was attempting to enforce the chargeback provision.

In particular, at para. 12 of its Statement of Claim, Marlborough alleges the chargeback provision of the DSSA is “unconscionable, oppressive and coercive, penal in nature and unreasonable in restraint of trade”. In addition, Marlborough obtained an interim injunction restraining Ford from seeking to enforce the chargeback provision of the DSSA. [ 6 ] The evidence before me is: (1) the Affidavit of Robert Hodge sworn October 18, 2002 (Hodge Affidavit #2); and (2) the Cross-examination of Robert Hodge on that Affidavit conducted on November 22, 2002 (Hodge Cross-examination).

In addition, Ford relied on three other affidavits in setting out the facts in its Memorandum, which I reviewed under Rule 313 of the Alberta Rules of Court , namely: (1) the Affidavit of Theodore Babie sworn April 16, 2001 (Babie Affidavit); (2) the Affidavit of Robert Hodge sworn July 13, 2001 (Hodge Affidavit #1); and (3) the Supplemental Affidavit of Theodore Babie sworn August 16, 2001.

GENERAL PRINCIPLES [ 7 ] Relevant to this application are Rules 93(4) and 132 of the Alberta Rules of Court . [ 8 ] The rationale for the Rules respecting counterclaims is “to avoid multiplicity of proceedings by bringing all parties to disputes relating to the subject matter of the action before the court at the same time without delay, expense or inconvenience”: Rorbak v.

Gibb (1982), 1982 ABCA 366 (CanLII) , 44 A.R. 18 at para. 14 (C.A.) . [ 9 ] Because a counterclaim must be conjoined with a statement of defence and is the addition of a new cause of action, [1] a defendant must bring an application to amend his or her pleadings to add a counterclaim. [ 10 ] The power to amend is discretionary.

The discretion is to be exercised generously rather than restrictively, [2] especially when the amendment is sought early in the proceedings. [3] [ 11 ] An amendment should be allowed if: (1) it can be made without prejudice or injustice to the opposing party, other than prejudice or injustice compensable in costs; [4] (2) it raises a triable issue; (3) it is not embarrassing; (4) it is pled with particularity; [5] and (5) there is some evidence to support any new facts of substance alleged. [6] [ 12 ] Further, the addition of a counterclaim should bear some proportionality to the claim and should not substantially increase the time or costs involved. [7] [ 13 ] Finally, whenever a proposed amendment adds or substitutes a party or changes the capacity of a party or adds a cause of action after the expiration of a limitation period, the “legislated functional approach” [8] of s. 6 of the Limitations Act , R.S.A. 2000, c.

L- 12 , must be applied to determine if the amendment is allowable. Therefore, s. 6 of the Limitations Act is also relevant to this application. ISSUE #1: GRAMMATICAL CHANGES OR CHANGES TO CORRECT DETAILS [ 14 ] The amendments sought to paras. 2, 5, 9 and 12 of the Statement of Defence are grammatical in nature or to correct details; they are not substantive. Marlborough does not oppose these amendments. Accordingly, I allow these amendments. ISSUE #2: PARAGRAPH 7.1 [ 15 ] Ford seeks to amend its Statement of Defence by adding para. 7.1.

Ford says the proposed para. 7.1 supplements the current para. 7 and, by inference, will assist the trier of fact to determine the real issues in question.

[ 16 ] Marlborough says the proposed amendment should not be granted because it is impermissible argument. [ 17 ] The Hodge Affidavit #2 at para. 5 sets out the express terms of the Discontinuance filed by the parties in 1993. While para. 7 of Ford’s Statement of Defence reflects the terms of the Discontinuance, the proposed para. 7.1 specifically sets out Ford’s position in relation to it. However, Ford’s position is just that: a position a party would take in argument.

Therefore, I accept the submission of Marlborough, and I do not allow this amendment. [ 18 ] ISSUE #3: PARAGRAPH 8 [ 19 ] Ford seeks to amend the current para. 8. It says the amendment is necessary for the purpose of determining the real issue with respect to the enforceability of the damages claimed under the chargeback provision.

In oral argument, Ford submits the amendment sets out the issue more accurately having regard to the law respecting the measurement of liquidated damages and penalty clauses. [ 20 ] Marlborough opposes this amendment, arguing there is no evidence to support it. [ 21 ] Considering the necessity of evidence for amendments in Mikisew Cree First Nation , the Court of Appeal said at para. 26: Some amendments to pleadings are trivial, or merely clarify wording or correct details. They probably do not require any evidence.

But to amend a pleading to allege new facts of substance requires some evidence, [9] even if there is no question of limitation periods.... [ 22 ] This proposed amendment does not allege new facts of substance. Rather, it may be characterized as one that clarifies wording. Thus, I find this amendment does not require any evidence. In addition, there is no evidence before me of any prejudice to Marlborough should this amendment be granted. Therefore, I allow this amendment. ISSUE #4: COUNTERCLAIM [ 23 ] Marlborough opposes the addition of the proposed Counterclaim.

Its position is twofold: (1) there is no evidence to support the facts alleged in the proposed Counterclaim; and (2) much of the proposed Counterclaim is statute-barred. Evidence in Support [ 24 ] Having reviewed the evidence before me to ascertain whether there is some evidence to support the facts alleged in the proposed Counterclaim, I make the following findings:

(1) There is evidence of the facts in para. 2 of the proposed Counterclaim. That evidence is found in the Babie Affidavit at paras. 19, 35; the Hodge Affidavit #1 at para. 3 ; the Hodge Affidavit #2 at para. 3 ; and the Hodge Cross-examination at 16.

(2) There is some evidence to support some of the facts in para. 3 of the proposed Counterclaim. In any event, in my view, this paragraph does not plead any facts of significance and, therefore, evidence is not required.

(3) There is evidence of the facts in para. 4 of the proposed Counterclaim. That evidence is found in the Hodge Affidavit #1 at para. 6 .

(4) There is evidence of the facts in paras. 5-6 of the proposed Counterclaim. That evidence is found in the Hodge Affidavit #1 at paras.

16-19, 22-23 ; the Hodge Affidavit #2 at para. 9 ; and the Hodge Cross-examination at 2-3, 5-6, 15-16, 19-24, 31, 34-35. Marlborough submits the first sentence in para. 9 of the Hodge Affidavit #2 is inadmissible because it is an opinion, argument or conclusion of law. It is clear from a review of the Hodge Cross-examination that the registration searches were conducted at the request of Ford, by an agent, of sales of all Ford of Canada dealers of specific vehicles for a certain period of time.

I find the first sentence in para. 9 of the Hodge Affidavit #2 admissible as falling within the exception to lay opinion evidence set out in Graat v. The Queen , 1982 CanLII 33 (SCC) , [1982] 2 S.C.R. 819 at 841, in that a lay witness may provide “a compendious statement of facts that are too subtle and too complicated to be narrated separately and distinctly”.

(5) There is evidence of the facts in para. 7 of the proposed Counterclaim. That evidence is set out above at (1).

(6) There is evidence of the facts in para. 8 of the proposed Counterclaim. That evidence is found in the Hodge Affidavit #2 at paras. 12- 13 ; and the Hodge Cross-examination at 26-27.

(7) There is evidence of the facts in para. 9 of the proposed Counterclaim. That evidence is set out above at (4).

(8) There is evidence of the facts in para. 10 of the proposed Counterclaim. That evidence is found in the Hodge Affidavit #1 at para. 6 ; and the Hodge Affidavit #2 at para. 10 . I find the latter paragraph admissible as set out below at (9).

(9) There is evidence of the facts in paras. 11-12 of the proposed Counterclaim. That evidence is found in the Hodge Affidavit #1 at Exhibit “A”; the Hodge Affidavit #2 at para. 10 ; and the Hodge Cross-examination at 12-14, 27-29. Marlborough says para. 10 of the Hodge Affidavit #2 is inadmissible because it contains unsupported hearsay in that Mr. Hodge has no personal knowledge of the alleged damages claimed by Ford and he fails to articulate the source and grounds of his belief that Ford has suffered damages as particularized.

Under Rule 305(3) of the Alberta Rules of Court , statements in an affidavit filed on an interlocutory motion may be based on the belief of the deponent where the source and grounds of the belief are articulated. However, because the source and grounds of Mr. Hodge’s belief are revealed by reading para. 10 of the Hodge Affidavit #2 in conjunction with para. 1 of that Affidavit and the Hodge Cross-examination on that Affidavit at 13-14, 34-35, I apply McFetters v. Drau Realty Ltd. (1986), 1986 CanLII 2767 (ON SC) , 55 O.R. (2d) 722 at 724-725 (Div. Ct.) , and find para. 10 admissible.

In conclusion, I find there is some evidence to support the facts of substance in the proposed Counterclaim. Therefore, I would not disallow the proposed Counterclaim for insufficient evidence. Limitations Act [ 25 ] The parties agree the limitation period has expired for at least a portion of the proposed Counterclaim and, therefore, s. 6 of the Limitations Act is applicable.

However, Ford submits s. 6(2) of the Limitations Act governs the addition of the proposed Counterclaim, whereas Marlborough argues, because the proposed Counterclaim would add Ford as a new claimant and Marlborough as a new defendant, ss. 6(2) to 6(4) govern. Marlborough further argues, in any event, I should exercise my discretion in disallowing the proposed Counterclaim outside the limitation period. [ 26 ]

Section 6 of the Limitations Act provides: 6(1) Notwithstanding the expiration of the relevant limitation period, when a claim is added to a proceeding previously commenced, either through a new pleading or an amendment to pleadings, the defendant is not entitled to immunity from liability in respect of the added claim if the requirements of subsection (2), (3) or (4) are satisfied.

(2) When the added claim (

a) is made by a defendant in the proceeding against a claimant in the proceeding, or (

b) does not add or substitute a claimant or a defendant, or change the capacity in which a claimant sues or a defendant is sued, the added claim must be related to the conduct, transaction or events described in the original pleading in the proceeding.

(3) When the added claim adds or substitutes a claimant, or changes the capacity in which a claimant sues, (

a) the added claim must be related to the conduct, transaction or events described in the original pleading in the proceeding, (

b) the defendant must have received, within the limitation period applicable to the added claim plus the time provided by law for the service of process, sufficient knowledge of the added claim that the defendant will not be prejudiced in maintaining a defence to it on the merits, and (

c) the court must be satisfied that the added claim is necessary or desirable to ensure the effective enforcement of the claims originally asserted or intended to be asserted in the proceeding.

(4) When the added claim adds or substitutes a defendant, or changes the capacity in which a defendant is sued, (

a) the added claim must be related to the conduct, transaction or events described in the original pleading in the proceeding, and (

b) the defendant must have received, within the limitation period applicable to the added claim plus the time provided by law for the service of process, sufficient knowledge of the added claim that the defendant will not be prejudiced in maintaining a defence to it on the merits.

(5) Under this section, (

a) the claimant has the burden of proving (

i) that the added claim is related to the conduct, transaction or events described in the original pleading in the proceeding, and (ii) that the requirement of subsection (3)(c), if in issue, has been satisfied, and (

b) the defendant has the burden of proving that the requirement of subsection (3)(

b) or (4)(b), if in issue, was not satisfied.

[ 27 ]

Section 1 of the Limitations Act defines “claim”, “claimant” and “defendant” as follows: 1 In this Act, (a) “claim” means a matter giving rise to a civil proceeding in which a claimant seeks a remedial order; (b) “claimant” means the person who seeks a remedial order; (c) “defendant” means a person against whom a remedial order is sought; ... [ 28 ] In Austec Electronic Systems Ltd. v. Mark IV Industries Ltd. (2001), 2001 ABQB 349 (CanLII) , 285 A.R. 154 (Q.B.) , the defendant sought leave to amend its Statement of Defence to add a Counterclaim after the expiry of the limitation period.

After setting out s. 6 of the Limitations Act , Burrows J. stated at para. 39: The circumstances here would be within s. 6(4) if the new Act applies. Mark IV would have the burden of proving that the proposed Counterclaim was related to the events described in the original Statement of Defence, and Austec would have the burden of proving that, within the limitation period plus the time for service, it did not receive sufficient knowledge of the added claim to prevent it being prejudiced in maintaining a defence to the Counterclaim on its merits.

Relying on that statement, Marlborough says s. 6(4) of the Limitations Act applies where a defendant seeks to add a counterclaim after the expiration of a limitation period. However, I do not read that statement, which, I note, was made in obiter, as authority for that proposition. The defendant in Austec Electronic Systems was seeking to counterclaim against not only the plaintiff but also three individuals not parties to the original action.

So, the proposed Counterclaim in that case contemplated the addition of three new defendants, implicating s. 6(4) , the requirements of which include the requirement of s. 6(2) . [ 29 ] I have read Alberta, Institute of Law Research and Reform, Limitations (Report for Discussion No. 4) (Edmonton: Institute of Law Research and Reform, September 1986) at 253-283 and Alberta Law Reform Institute, Limitations (Report No. 55) (Edmonton: Alberta Law Reform Institute, December 1989) at 80-89, which led to the enactment of the Limitations Act .

That commentary and a plain reading of s. 6 of the Limitations Act lead me to conclude s. 6(2) governs when a counterclaim is sought to be added by a defendant in the original proceeding against a claimant in the original proceeding after the expiration of a limitation period, in other words, when the parties to the proposed counterclaim are already parties to the original proceeding.

Thus, I must determine whether Ford has established, in accordance with ss. 6(2) and 6(5)(a)(i), that its proposed Counterclaim is “related to the conduct, transaction or events described in” Marlborough’s Statement of Claim. [ 30 ] I find Ford has established, from the Statement of Claim and the evidence before me, that its proposed Counterclaim is related to the conduct, transaction or events described in Marlborough’s Statement of Claim. For example, Marlborough’s Statement of Claim seeks interim and permanent injunctions restraining Ford from enforcing the chargeback provision of the DSSA.

The interim injunction granted does in fact restrain Ford from enforcing the chargeback provision in respect of new Ford vehicles sold by Marlborough and subsequently resold in the U.S.A.

Ford’s proposed Counterclaim is a claim to enforce the chargeback provision regarding the very vehicles in respect of which it is restrained from enforcing the chargeback provision. [ 31 ] Cases decided under the former Alberta limitations legislation adopted the common law analytical approach to amending pleadings outside a limitation period, rejecting the common law functional approach “which presumes that amendments will be allowed unless the party resisting amendment can show it will suffer actual prejudice” ( Stout Estate at para. 97 ).

In Stout Estate at para. 100 , the Court of Appeal, per Wittmann J.A., ruled respecting the amendment of pleadings outside the limitation period under the Limitations Act : As the analytical approach [taken under the former limitations legislation] has been replaced by a legislated functional approach, special circumstances are no longer required to amend pleadings. Instead, a court must evaluate whether each of the requirements of s. 6 are

made out in the circumstances of the particular case. [ 32 ] In Alberta v.

Railink Ltd. , 2003 ABCA 69 at para. 3 , the Court, per Fruman J.A., held: This court ... held in Stout Estate that the common law no longer applies to amendments to pleadings that add or substitute parties or add causes of action after the expiration of a limitation period. “Instead, a court must evaluate whether each of the requirements of s. 6 are made out in the circumstances of the particular case”: at 614. [ 33 ] Having regard to those rulings of the Court of Appeal, I emphasize that the governing approach to amendments to pleadings that add causes of action after the expiration of a limitation period is the legislated functional approach, not the common law functional approach, nor the common law analytical approach.

The only requirement of s. 6(2) of the Limitations Act , that the added claim “be related to the conduct, transaction or events described in the original pleading in the proceeding”, has been satisfied by Ford, and, therefore, Ford is allowed to amend its Statement of Defence by adding the proposed Counterclaim. In so ruling, I note the relationship requirement of s. 6(2) serves purposes previously served by the common law; in Limitations (Report No. 55) at 83, the Alberta Law Reform Institute commented: 12. The relationship requirement is designed to serve at least three purposes.

First, it gives the courts ample latitude to adjudicate claims in a single proceeding whenever this is [desirable] under objectives of procedural policy. Second, it assists the claimant to exercise some control over the eventual size of the civil proceeding which he commenced. The conduct, transaction or events which the claimant describes in his original pleading will operate as a screen determining which added claims may remain subject to a limitations defence notwithstanding the exception provisions.

Third, it prevents any possible prejudice to a defendant because of surprise by the addition of a claim after the expiration of the limitation period applicable to the added claim.

Because the defendant (unless the original claimant) must have been made a party to the action under a timely claim, he will know of the conduct, transaction or events described in the original pleading in the action, and he will be able to gather and preserve evidence as to any possible claims against him based on the described conduct, transaction or events. [ 34 ] If I am wrong that ss. 6(3) and 6(4) of the Limitations Act are inapplicable, the result would not change. From the Statement of Claim and the evidence before me, I find Ford has established, in accordance with ss. 6(3) (

c) and 6(5)(a)(ii), that its proposed Counterclaim “is necessary or desirable to ensure the effective enforcement of the claims originally asserted or intended to be asserted in the proceeding”. [ 35 ] As to whether Marlborough has received sufficient knowledge of the proposed Counterclaim so as not to be prejudiced in maintaining a defence to it on the merits, in accordance with ss. 6(3) (

b) and 6(4) (

b) of the Limitations Act , I note the steps taken to date are:

(1) Marlborough’s Statement of Claim filed;

(2) Ford’s Statement of Defence filed;

(3) Marlborough’s application for an injunction filed; (4) the application for an interim injunction heard and an order made; and

(5) Ford’s application to amend its Statement of Defence filed and heard. In oral argument, counsel advised no discoveries have taken place, nor has there been any production of documents. While I note there has been some delay between the filing of the Statement of Claim and Ford’s application to amend its Statement of Defence, I do not find that delay, in itself, to be proof of prejudice to Marlborough within the meaning of ss. 6(3) (

b) and 6(4) (

b) in light of the steps taken to date. [ 36 ] Section 6(5) (

b) of the Limitations Act requires that Marlborough prove that the requirements of ss. 6(3) (

b) and 6(4) (

b) were not satisfied. Because Marlborough did not file any evidence on this application, I have no evidence before me that Marlborough will suffer prejudice within the meaning of ss. 6(3) (

b) and 6(4) (

b) if the proposed Counterclaim is allowed. Further, Marlborough acknowledged in oral argument it takes no issue with Ford commencing a separate action and then applying to consolidate the actions for trial, provided no limitation period has expired. This position suggests no prejudice to Marlborough within the meaning of ss. 6(3) (

b) and 6(4) (

b) if the proposed Counterclaim is allowed.

CONCLUSIONS [ 37 ] In

summary, the proposed amendments to paras. 2, 5, 8, 9 and 12 of Ford’s Statement of Defence and the addition of the proposed Counterclaim (and the proposed para. 15 to the Statement of Defence) are allowed. I do not allow the addition of the proposed para. 7.1 to the Statement of Defence. [ 38 ] Costs were not addressed by counsel at the hearing of this application. Therefore, counsel may appear before me within 60 days to argue costs if they are unable to resolve the issue themselves. HEARD on the 6 th day of December, 2002.

DATED at Calgary, Alberta this 1st day of April, 2003. __________________________ J.C.Q.B.A. [1] Rorbak at paras. 11-12 . [2] Deuruneft Deutsche-Russische Mineralol Handelsgesellschaft mbH v. Bullen (2002), 2002 ABQB 304 (CanLII) , 310 A.R. 164 at para. 26 (Q.B.). [3] Gainers Inc. v. Pocklington Holdings Inc. (1991), 1991 CanLII 13083 (AB KB) , 122 A.R. 13 at para. 4 (Master); 383618 Alberta Ltd. v. National Quick-Freeze & Produce Ltd ., [1997] A.J. No. 376 at para. 13 (Q.B.) . [4] Milfive Investments Ltd. v. Sefel (1998), 1998 ABCA 161 (CanLII) , 216 A.R. 196 at para. 3 (C.A.); Miller v.

Canadian Pacific Railway Co. , 1933 CanLII 380 (AB CA) , [1933] 1 W.W.R. 233 at 235-236 (Alta. S.C. (A.D.)). [5] Ilic v. Calgary Sun (1998), 1998 ABQB 419 (CanLII) , 224 A.R. 116 at para. 11 (Q.B.); Murphy Oil Co. v. Predator Corp. , 2002 ABQB 403 at paras. 59-60 . [6] Mikisew Cree First Nation v. Canada (2002), 2002 ABCA 110 (CanLII) , 303 A.R. 43 at para. 26 (C.A.); Anderson Exploration Ltd. v. Pan-Alberta Gas Ltd. (1998), 1998 ABQB 456 (CanLII) , 224 A.R. 109 at paras. 7-14 (Q.B.). [7] Deureneft at para. 26; Ilic at paras. 53-55 . [8] Stout Estate v.

Golinowski Estate (2002), 2002 ABCA 49 (CanLII) , 299 A.R. 13 at para. 100 (C.A.). [9] See also Hodge v. Carey Industrial Services Ltd. (1997), 1997 CanLII 14774 (AB KB) , 202 A.R. 154 at para. 7 (Master).